Despite intermittent volatility, markets have rallied since 2014 on high growth expectations from the economy. But while acceleration in growth still remains tentative in many pockets, the auto sector is one space that has seen promising sales. Heavy truck and bus sales have convincingly turned around from the slowdown years of 2012-13 and 2013-14. Small truck volumes, too, have picked up in recent times. Scooters are showing steady growth while the outlook for cars and bikes is upbeat.
What has fuelled the strong show in various segments of the auto industry in the last two years? And, with a lot of recent happenings impacting the industry — be it the ban on certain kinds of diesel vehicles imposed in the last few months, the GST Bill going a step closer to reality last week, the upcoming changeover to BS 1V fuel norms across the country or the Seventh Pay Commission awards — what are the levers for further growth or risks thereto from hereon?
In top speed
Nothing truly represents the auto industry’s cyclicality as the sale of trucks and buses (called Medium and Heavy Commercial Vehicles or MHCVs). This is because CVs, especially trucks, are used to transport goods and agricultural produce and for industrial/infrastructure purposes such as mining and haulage of construction material. Hence, the demand for new CVs depends on the economic cycles of boom and bust. Secondly, new CV sales also depend on the interest rate cycle, with any dips in borrowing costs tilting the scale in favor of new CV sales. Positive sentiment on both these counts saw sales of MHCVs pick up in the last two years.
After an increasing trend in the key policy rate (repo rate) in 2013 and a neutral stance in 2014, the RBI began cutting rates in early 2015. This lifted sentiment as it signaled that interest rates had peaked out. The Modi government’s reform measures in sectors such as mining and revival in road building activity helped push up MHCV demand. Fleet operators saw merit in replacing older vehicles or adding to their fleet to anticipate higher industrial activity. Lower diesel prices from a rout in crude oil made it economical for transporters to carry goods and encouraged fleet replacement or expansion. Consequently, the sale of MHCVs moved up by 16 percent in 2014-15 and by 30 percent in 2015-16 over the respective previous years. The low base of the earlier years helped, too. Following stellar growth after the global economic slowdown of 2008-09, MHCV sales had hit a trough in 2012-13 and 2013-14. Volume growth in these two years witnessed a 23-25 percent fall in each of these two years, compared with the respective previous years. Hence, pent-up demand for replacement of old vehicles also kicked in.
Read More Articles :
- The Tesla Model 3 Is Still a Rich Person’s Car
- The 8 most expensive and insanely fast supercars in the world
- Panasonic Announces New Alexa Integration for Automobiles
- What Pope Francis Should Really Say to Donald Trump
- Car showrooms, sealed in Delhi
With the upturn in heavy vehicles firmly in place, the sale of Light Commercial Vehicles (LCVs) used for last-mile connectivity gathered steam in the last few months too. LCVs ended 2015-16 with a marginal 0.30 percent growth, after the fall in volumes in the two previous years. Volume growth has gained further traction in the first three months of this year.